Archive 2011-33: Cost of Capital/Discount Rates in Litigation




Cost of Capital and Discount Rates in Litigation/Damages Valuation and Lost Profits

Webinar 33 Broadcast Date: Wednesday, January 19, 2011

Speakers: James R. Hitchner, CPA/ABV/CFF, ASA, Moderator with

Robert L. Dunn, Esq. and Everett P. Harry, CPA, MBA

Webinar Outline:

  • Valuation – Cost of Capital
    – Litigation traps in cost of capital components – what you must know to support and defend your opinion
    • Equity risk premiums
      • Ibbotson supply side vs. historical/traditional
      • Ibbotson adjusted vs. unadjusted
      • Duff & Phelps (D&P) adjusted vs. unadjusted
      • Why beta matters even in the build up model
    • Size premiums
      • Ibbotson 10, 10a, 10b, 10w, 10x, 10y, 10z
      • D&P 24th and 25th category
      • D&P combined vs. separate – why are they different and which one is correct?
    • D&P’s three fundamental measures of risk: operating margin, coefficient of variation of operating margin and coefficient of variation of
      return on equity input
      • Is size and specific company risk included or not?
    • How to reconcile Ibbotson and D&P results
    • Ibbotson industry risk premium
      • Can it be supported?
    • Beta
      • New thinking and models on levering and relevering
    • Specific company risk
      • Can it be supported and, if so, how?
      • Update on Butler Pinkerton and total beta models
  • Lost Profits – Discount Rates
    – Litigation traps in discount rate calculations – what you must know to support and defend your opinion
    • Can the present value of lost profits exceed business value?
    • When to use lost profits and when to use valuations
    • Can and should business valuation methods be used to determine discount rates for lost profits?
    • Finite periods vs. perpetuity
    • Accounting for risk
    • Ex ante vs. ex post information
    • Can a risk-free rate ever be used?
    • How taxes can affect the discount rate
    • Mitigation
    • Plaintiff inputs vs. hypothetical buyer/seller inputs per fair market value
    • How the discount rate should interact with the projected lost profits
  • Discount Rates in the Courts
    • Interaction between attorney and expert on discount rate testimony
    • Discount rates as a question of fact
    • Discount rate history in court
    • Energy Capital Corp. v. United States
      – the leading discount rate case
    • Cost of capital plus a risk premium – becoming the standard?
    • Accounting for risk – in the income stream or in the discount rate?
    • Discounting to the date of the wrong (ex ante) or discounting to the date of judgment (ex post)

Learning Objectives:

  • The participant will learn the differences between valuation damages and lost profits damages
  • The participant will learn how to support and defend discount rates and the cost of capital for both lost profits and valuation litigation
  • The participant will be updated on what the courts are saying about discount rates and the cost of capital
  • The participant will learn the traps attorneys spring on expert witnesses who testify to discount rates and the cost of capital

Included in this downloadable package are:

  • Audio/Video file
  • Webinar transcript
  • Original Webinar handouts

The archived webinar package is an Adobe Presenter PDF file that allows you to view the video of the webinar with the synced audio so that you see the presentation just as it was presented “live.” The Presenter format also allows for easy navigation through the webinar so you can quickly go to a specific section in the presentation. The handout materials are included in the file. To view the Webinar Presenter file, you must have Adobe Reader software version 9 or higher. You can download the free current version of Adobe Reader at Please note that CPE is only available for live webinar broadcasts.

Additional information

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